Nobody needs to tell America’s workers that the economy is sliding into a second recession in seven years, since they never really recovered from the last recession. America’s workers are struggling with decades of stagnant wages, eroding workplace protections, a collapsing housing market, tight credit and rising prices for everyday essentials such as gas, home heating oil, health care and food. In this economic environment, it is all the more urgent that we reform our flawed trade policies to put good jobs at the center of a coherent global economic strategy.
While trade issues have recently taken center stage in the Democratic primary debate, too often politicians and the media treat our trade problem as a separate and secondary issue that can be treated with small tweaks in trade policy or worker displacement programs. To the contrary, our struggle to compete successfully in the global economy is intricately connected to the other challenges the U.S. economy and working families are facing.
Starting with the North American Free Trade Agreement (NAFTA), our policymakers accelerated the shift of production and jobs out of the United States. A high dollar policy, tax breaks for producing overseas and trade agreements aimed at protecting the profits and flexibility of mobile capital combined to send a powerful signal to businesses that moving jobs offshore was the right response to tightening global competition. Wall Street encouraged this mind-set by balking at financing any expansion of U.S.-based production facilities, instead encouraging “global sourcing.”
We were reassured that this would strengthen American “competitiveness”—by shifting less capital-intensive production to low-wage countries like Mexico, we would be better positioned to compete with Europe and Asia in global markets. Fourteen years later, our global trade deficit has increased more than tenfold—from $70 billion in 1993 to more than $700 billion in 2007. And of course it isn’t just low-wage or labor-intensive production that has moved—we are losing ground in advanced technology products, autos and even aerospace. Tradable services—from call centers to legal research to airline maintenance—are also increasingly being offshored.
Not to worry, the pundits responded: Trade deficits are actually a sign of American strength, reflecting our rapid growth relative to other countries and the attractiveness of the United States to foreign investors. We have now racked up $5.6 trillion in international debt since 1994 because every year we are borrowing from the rest of the world to fund consumption of goods and services we do not produce.
This hollowing out of our own productive capacity and the resulting precarious and unsustainable international debt has left us vulnerable in numerous ways.
First, it has been a significant contributor to eroding real wages for the majority of America’s workers. International trade theory, empirical evidence and common sense all confirm that if we put America’s workers into direct competition with lower-paid, less-protected workers in other countries, through a combination of lower trade barriers, reduced risk for overseas investors and new technology, then wages for non-college-educated workers in the United States will slide. Because workers without a college degree still make up almost two-thirds of the U.S. labor force, this ought to be a central concern of every politician, not dismissed by smug references to workers’ misplaced “anxiety.”
Second, the assault on unions and workers’ rights here in the United States is closely connected with similar assaults worldwide. Deepening global economic integration—without enforceable protections for workers’ human rights—has set the rights, wages and working conditions of the most vulnerable and disenfranchised workers in the world as the standard for others to meet. Employers everywhere go to the bargaining table or face down unions armed with threats to move production to countries where unions aren’t a “problem,” where health and safety regulations aren’t enforced, where environmental protection is ignored and where wages are “competitive.”
In the global economy of 2008, it is literally true that “An injury to one is an injury to all.” We can’t rebuild the middle class here in America unless America’s workers have the freedom to choose a union and to bargain collectively for their fair share of the wealth they create. And we can’t protect the right to organize in America if the rights of workers worldwide are routinely trampled.
While progress has been made in incorporating enforceable international workers’ rights and environmental standards into some trade agreements, much remains to be done. Now we have to do the hard work not only of enforcing those provisions but also expanding upon them. We also need to ensure that strong workers’ rights provisions apply globally—not just to the handful of countries with which we have trade agreements.
Third, the hollowing out of our manufacturing sector and our mounting international debt have serious national security implications. We are losing critical capacity to supply our troops in a timely fashion with ammunition, vehicles, uniforms and other essential equipment. We are increasingly dependent on foreign governments—which may or may not share our objectives—to fund our mounting debt.
This mounting debt has also helped fuel China’s enormous foreign reserves and has provided the seed capital for its Sovereign Wealth Fund. This fund already has invested in several Wall Street institutions and is poised to engage in a further buying spree. This is a government-controlled and directed fund that may simply facilitate China’s efforts to promote its export-led policies and limit our ability to respond to its unfair and predatory trade practices. Other countries have established their own funds for similar activities.
Fourth, as the Bush administration dismantled our national consumer regulatory apparatus, the oversight of imported food and product safety was criminally neglected. The results were unhealthy food, tainted toys, unsafe steel, defective tires and risky pharmaceutical products on our shelves, in our homes and on our kitchen tables. And these are only the products that have been well documented. We continue to raise concerns over other items that are produced and maintained in other countries that lack basic safety and quality control standards. The same unregulated profit drive that leads to violations of workers’ rights and disregard of environmental protections results in companies shirking their responsibility and sending defective products and unsafe food to America’s consumers.
The growing trade deficit, the dependence on foreign governments and foreign bankers, the violations of workers’ human rights and the unsafe products are all signs of a policy gone wrong.
What needs to be done?
Any solution has both a national and international component. At the national level, we need to fight for workers’ rights to form unions and bargain for decent wages and working conditions; we need guaranteed, universal and equitable health care and retirement security systems that do not create competitive disadvantages for domestic companies; and we need to invest in education, technology and infrastructure, especially in clean energy.
We also need a national strategy to rebuild our manufacturing base as a core element in restoring America’s middle class. Stopping nations from supporting their export-based economic strategies with illegal trade activities is critical to this goal, but it must be complemented by tax and investment strategies to revitalize our production capacities.
But if we ignore the global component, unregulated global competitive pressures will eventually undermine any domestic reforms and worker gains. Trying to protect the American middle class without changing our interaction with the global economy is like pouring water into a leaky vessel.
For the United States, there are several key components to a new global strategy:
First, we need to take a strategic pause in implementing and negotiating new trade agreements until we can build a comprehensive new trade policy that will support the creation of good jobs at home. This must apply both to bilateral agreements and new talks at the World Trade Organization. In particular, we remain strongly opposed to the proposed free trade agreements with Colombia and South Korea—Colombia because of the egregious violence and abuse of workers’ human rights, and Korea because of the imbalanced market access provisions, particularly with respect to the auto sector. We should use the strategic pause to review the performance of past trade agreements and recommend renegotiation where needed.
Second, our imbalanced trade relationship with China needs urgent attention. The Chinese government has violated its international obligations with respect to workers’ rights, human rights, currency manipulation, export subsidies and intellectual property rights, among other things.
All of these factors contribute to the growing U.S. trade deficit with China, which hit $256 billion in 2007. We urge Congress to introduce and pass a comprehensive trade bill giving our government the tools it needs to address the Chinese government’s currency manipulation and illegal subsidies, strengthening our trade laws and their enforcement, ensuring the safety of our imports and protecting intellectual property rights. We have strongly supported the Ryan-Hunter bill, H.R. 2942, as the best approach for addressing currency manipulation across the board, including by Japan and other countries. The executive branch has simply failed to act, so Congress must enact strong legislation addressing these concerns.
Third, our corporate tax system is insanely inefficient and unfair. American taxpayers currently subsidize the offshoring of their own jobs (at a rate of $7 billion to $9 billion a year) through policies that exempt income earned offshore from corporate taxes. Very few other countries have similar systems, and most (especially industrialized countries) have some form of “border-adjustable” tax that exempts exports from sales or value-added taxes. Our current system taxes the profits earned on exports (unlike many other countries) while subsidizing offshoring of jobs. We need a complete overhaul of our corporate tax system to address this competitive disadvantage. This outdated loophole must be closed, and the United States must take action to assist production here in America.
Fourth, we need to strengthen and effectively enforce our trade laws so when foreign governments and companies engage in anti-competitive trade actions they are held accountable to ensure that America’s workers and businesses can compete fairly on a level playing field. We must ensure that WTO negotiations and actions do not undermine our ability to use our trade laws effectively.
Fifth, we need to ensure import safety. We must also insist that items produced and maintained elsewhere meet the highest quality control and safety standards available.
Sixth, we need to demand transparency from the increasing number of Sovereign Wealth Funds that seek to participate in our market. These funds are government-directed and their investments may dramatically reshape our market. We cannot allow them to jeopardize the jobs and livelihoods of our members.
Finally, we need to ensure that when we act domestically to address the challenge of climate change, our trading partners also take commensurate actions. Otherwise, we will lose our own jobs as production moves to the least-regulated countries, and global emissions will actually worsen. World Trade Organization rules must accommodate trade-related measures to coordinate responses to global environmental challenges.
We face enormous challenges, but politically viable solutions are within reach. No single action will get us out of the hole we’re in, but addressing the tax, currency and trade policy pieces points us in the right direction.